Keppel's 33% CAGR: A Tale of Efficient Growth and Unusual Items

Keppel Ltd. (SGX:BN4) shareholders have earned a 33% compound annual growth rate (CAGR) over the last three years, a remarkable feat in today's volatile markets. But what factors contributed to this impressive performance, and can it be sustained? Let's dive into the numbers and find out.



First, let's look at Keppel's improved returns on capital employed (ROCE). Over the last five years, Keppel's ROCE has climbed 81%, indicating that the company has become more efficient in generating returns from its capital employed. As of June 2024, Keppel's ROCE stands at 3.5%, which is still low but shows improvement compared to the past. This increased efficiency has contributed to the company's growth, as it has been able to improve its operational efficiency and profitability without needing to invest in additional capital.

Another factor contributing to Keppel's growth is the increased earnings before interest and tax (EBIT). Despite keeping capital employed relatively flat, Keppel has managed to increase its EBIT, suggesting that the company has been able to improve its operational efficiency and profitability. This increased earnings power has likely contributed to the company's 33% CAGR over the last three years.

However, it's essential to consider the influence of unusual items on Keppel's earnings. In the year to December 2023, Keppel reported a S$256m gain attributed to unusual items, which was quite substantial relative to its profit. While this gain contributed to the company's overall profits, it is important to note that such gains may not be sustainable in the long run. This raises concerns about the sustainability of Keppel's recent performance, as investors may be looking beyond the statutory profits and focusing on the company's underlying earnings power.



To better understand Keppel's future profitability, analysts' estimates can be considered. However, the article does not provide specific analyst estimates, so it's essential to look for additional sources to gain more insights into the company's expected future performance.

In conclusion, Keppel's 33% CAGR over the last three years can be attributed to several factors, including improved returns on capital employed, increased earnings before interest and tax, and the influence of unusual items on the company's earnings. While the company's recent performance is impressive, investors should be cautious and consider the sustainability of its growth, as well as the potential impact of unusual items on its earnings. By examining analysts' future profitability estimates and considering other factors, investors can make more informed decisions about whether to invest in Keppel or not.